What are Payroll Liabilities? A Guide for Employers

Plus, employees will also be able to track the Payroll Accounting amount of their compensation allotted for tax obligations. Employees are the backbone of any organization—but how much do they cost? Payroll accounting lets you keep track of the cost of each employee.

Track and manage time

• Excel can also help you design a custom payroll report to track expenses and keep your general ledger organized.
• Once payroll runs, they can log in anytime to track their wages, view or download pay stubs, and check deductions—ensuring everything looks accurate.
• Whether you use payroll software or a spreadsheet, structure these columns correctly for accurate pay runs and payroll reports.
• No one likes to reconcile payments, but payroll software can reconcile payments at regular intervals to ensure your payroll manager never falls behind.
• In this employer’s guide, learn about high-impact HR strategies that actively boost employee engagement, strengthen retention, and accelerate organizational success.

Payroll liabilities, or payables , are amounts you currently owe, pertaining to your business’s payroll. If you’re using a payroll journal, you enter payables as credits because you are increasing the amount you owe. Examples of payroll liabilities include employee wages or compensation and payroll taxes. Businesses should stay up to date on their payroll accounting, both for their financial knowledge and to stay compliant with government regulations. If your business is ever audited, you need records of your taxes and employee compensation.

➔ Decide the Payroll Factors

• Since payroll accounting helps you maintain a record of the salaries and benefits of your employees, it provides a secure way to track your costs related to your staff members.
• You can record your payroll system’s transactions, income, and expenses using reliable accounting software.
• Taking the help of technology not only speeds up the processing of employee payroll but also helps avoid manual errors.
• Wondering how payroll accounting differs from cost accounting?
• It allows you to do more with less—less money, less headcount, and less time.
• It also helps ensure that you are within budget throughout the year.

Since payroll accounting provides easy access to the company’s expenses on their employees, it also proves useful when analyzing the overall business expenses. Since human resources within an organization are its most valuable resource, companies can use the payroll accounting data to find out how much they are spending on their staff members. Here, $1,000 would be recorded as gross salaries under expense account of the income statement, and hence it would be shown as credit. Then, as a balancing act, record the FICA, State income taxes, federal income taxes, and salaries payable liability account of the balance sheet as the debit. For example, workers’ compensation is recognized as an expense once the period that the premium covers has elapsed. The process for payroll accounting starts with setting up a chart of accounts and gathering reports from your payroll system.

➔ Calculate Salaries

• If you haven’t already done so, follow the steps to add new accounts in your Chart of Accounts to monitor payroll liabilities and expenses.
• You must also track the goal amounts for these deductions, so that you stop deducting once the goal totals are reached.
• The asset and expense accounts are classified as debits when it increases and credit when it decreases.
• Let’s look at the reasons why accurate payroll accounting matters.

Using accounting software is going to significantly free up your time so you can focus on other areas of your business. Plus, accounting software is more accurate, ensuring everything you’re doing is being done properly. One of the final steps in calculating payroll is to ensure all information is accurate and where it needs to be. This could be spotting inconsistencies or any accidental mistakes.

This means you will need to calculate the total amount of expenses you have and then debit your journal for the exact amount. The accounting software you use will make it easy to regularly pay your employees on time. Accountants use financial journals to summarise the transactions within an organisation. The general ledger contains a range of other financial information, as well. Payroll is a process that requires human participation, but it’s also an accounting operation.

Payment Type and Periodicity

Though some systems that incorporate more or less automation may not include all of these steps, the following process flow will apply to most payroll systems. Another major benefit of deploying payroll software is that it automates compliance handling. Modern payroll software is hosted on the cloud and hence, it stays up to date with the latest changes in statutory compliances.